IHS Markit sees India's FY22 GDP growth at 9.6% amid rising Covid cases

On-going lockdown and mobility curbs coupled with fears of an extension – time wise and across more Indian cities – have led to economists tweak their gross domestic growth (GDP) projections for fiscal 2021-22 (FY22). 

In a recent note, those at IHS Markit suggest that they expect the Indian economy (as measured by GDP) to grow at 9.6 per cent in FY22. Maharashtra’s lockdown, it said, represents a significant dampener on growth, as the state accounts for 16 per cent of national GDP.

“IHS Markit forecasts 9.6 per cent real GDP growth in FY 2021, though the wider restrictions forecast above indicate that there is scope for further reductions in economic growth, as these measures would mean income and job losses for workers alongside significant output and revenue losses for firms, particularly in the services sector and the informal economy,” wrote Deepa Kumar, deputy head, Asia-Pacific, IHS Markit in a co-authored note Hanna Luchnikava-Schorsch, their principal economist for Asia Pacific and Angus Lam, their senior economist.

With a number of states announcing an extension of curbs, IHS Markit feels more states are likely to follow suit, including West Bengal, Odisha, Chhattisgarh, Uttar Pradesh and Jharkhand. Following Maharashtra and Delhi that have announced a lockdown and mobility curbs, Karnataka, too, followed with similar measures for 14 days starting April 27.

Those at Nomura, too, expect the pain in the economy to grow given the recent measures to curb the pandemic. However, they believe that the overall impact will be muted and be for the short-term as compared to 2020 when all economic activity came to a standstill for a few weeks.

“We also see signs of the economic pain spreading to the wider economy (power demand, GST e-way bills, railway freight). With more states extending restrictions, sequential momentum is likely to remain weak over the next month, hurting GDP growth in Q2 2020. The sharp slowdown in ultra-high frequency indicators since April and extended restrictions does suggest downside risk to our existing GDP growth projection of 11.5 per cent y-o-y in 2021 versus -6.9 per cent in 2020,” wrote Sonal Varma, managing director and chief India economist at Nomura, in a co-authored note with Aurodeep Nandi.

Meanwhile, the ban on the export of Remdesivir is likely to continue in the three-month outlook, with import reliance on oxygen cylinders, essential medicines, and protective equipment, said the IHS Markit note. In addition to movement restrictions, India, it believes, will rely on its vaccine rollout to mitigate the virus’s spread, with its vaccine diplomacy agenda being halted in at least the three- to six-month outlook in order to mitigate the domestic outbreak. 

“Cargo theft of essential medical supplies and vaccines are likely to increase in India, particularly during inter-state transit in and around Delhi, Punjab, Uttar Pradesh, Bihar and Haryana. Besides oxygen cylinders, instances of theft are likely to affect transport of essential medicines such as Remdesivir, medical equipment, and potentially vaccine doses,” cautioned analysts at IHS Markit.